529 plans and their 2026 gift limits

For many people, paying for college is the most challenging part of going to college. Student loans, scholarships and other tuition assistance programs can help, but that doesn’t always solve the issue. And even if all of these measures are enacted, many people are still left with massive amounts of student debt.

With the average cost for one year of college tuition in 2025-26 being $45,000 at private colleges and $11,950 at public colleges for in-state residents, planning ahead to figure out how to save for college costs is a must for many.

Millennials in particular face a student debt crisis, with an average of $39,075 of federal student loan debt per borrower. Whether you’re a millennial who doesn’t want their child to be burdened with student debt too, a parent planning ahead for your child’s future educational expenses or you’re trying to save for college amid market volatility, a 529 plan can be a helpful way to do this in a tax-advantaged way that could help you or your child be left with less debt.

What is a 529 plan?

A 529 plan is a tax-advantaged savings plan designed to help pay for educational expenses. They offer tax-deferred earnings growth and tax-free withdrawals when the funds are used to pay for a beneficiary’s qualified education expenses. Funds can be used at any accredited university, college or vocational school nationwide, and many abroad.

The most common type of 529 plan is a savings plan. You contribute to an account, and the money is invested (usually in mutual funds). The amount grows tax-deferred over time due to your contributions and the returns generated by your investments. Then, when your child is ready to start college, you withdraw the money tax-free to use it for their qualified educational expenses. If you start contributing to a 529 plan when your child is young, you might be surprised at how much it can grow by the time they’re ready for college.

(You can even use a 529 plan for K-12 tuition, but the rules change slightly – starting in tax year 2026, you can withdraw only up to $20,000 per year. Not all states treat K-12 tuition as a qualified expense, please consult a tax professional.)

In addition to 529 savings plans, which are the most common, some states and higher education institutions also offer prepaid tuition plans. These vary by state, but the main idea is that you can lock in tuition costs at current rates for a student who may not attend until many years later. Unlike savings plans, prepaid tuition plans do not cover room and board. In addition, prepaid tuition plans can only be used at in-state public colleges (in contrast to a savings plan, which can be used at almost any eligible institution).

529 gift limits

You may gift money to a student’s 529 plan. For example, a grandparent may open a 529 plan for their grandchild, or a person may contribute to a 529 plan that is owned by a child’s parents. If you contribute to a 529 plan, it's unlikely that you will incur a gift tax, as amounts up to the annual exclusion amount will not count against your lifetime gift and estate tax exemption.

For 2026, the gift tax exclusion is $19,000 per recipient and $38,000 per married couple. This means that you and your spouse can gift up to $19,000 each to multiple recipients in a year without exceeding the gift tax exclusion amount.

Account owners can front-load up to five years of contributions to a beneficiary’s 529 as annual exclusion gifts without gift taxes (so in 2026, a single filer can contribute up to $95,000 for a beneficiary in a single year, and a married couple can contribute up to $190,000).

Anyone can open a 529 account

Coming up with thousands of dollars the year that your child goes to college often isn’t doable for many parents. Setting aside a little money each month or year often is. Most 529 plans have low investment minimums. Moreover, these minimums are usually waived if the account owner sets up automatic recurring investments. Doing this for 18 years can result in a large sum of money to use for college. Although creating an account to fund education expenses may sound complex or like an option that’s only for wealthy people, anyone can do it and benefit from the rewards.

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